Federal Industry Minister Christian Paradis did not explain his decision in a statement released just before midnight Friday, saying only that it was made after a careful and thorough review of the proposed transaction.

"Due to the strict confidentiality provisions of the (Investment Canada) Act, I cannot comment further on this investment at this time," said Paradis.

"Canada has a long-standing reputation for welcoming foreign investment. The Government of Canada remains committed to maintaining an open climate for investment," he added.

Observers had been looking for signals from the review of the Petronas deal for an indication of how the government might proceed with the more controversial deal to buy Nexen.

Both deals involve Asian state-owned players, are worth billions of dollars and sprang from joint-venture partnerships with Canadian firms, but the Chinese bid has stoked a great deal more political furor than the Malaysian one.

"China comes with more baggage, as befits a great power," said Gordon Houlden, director of the University of Alberta's China Institute.

CNOOC and other big state-owned Chinese energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel China's economy. The companies have moved more carefully since CNOOC tried seven years ago to buy the California energy firm Unocal Corp. only to withdraw its bid in the face of opposition from U.S. lawmakers who cited national security fears.

Nexen, a mid-tier Canadian energy company, operates in western Canada, the Gulf of Mexico, the North Sea, Africa and the Middle East, with its biggest reserves in the Canadian oil sands. It produced an average of 213,000 barrels of oil a day in the second quarter of this year.

Acquisitions must be deemed a "net benefit" under the Investment Canada Act. Concerns have been raised by lawmakers about a takeover by a state-owned Chinese firm but the deal has garnered support from the premier of Alberta where Nexen is based. Analysts say it will likely be approved because more than 70% of Nexen's assets are outside Canada.

Political scientist Wenran Jiang said the challenge for Ottawa will be to show consistency in how it applies the Investment Canada Act's key net benefit test to foreign deals.

"They will have to appear that they use the same set of rules to evaluate, rather than using different tailor-made rules," said the senior fellow at the Asia Pacific Foundation of Canada.

Paradis has extended the review of the CNOOC-Nexen deal until mid-November. The reviews can be extended by further 30-day increments, with the buyer's consent.

While some foreign takeovers are approved in Canada, the Conservative government rejected Anglo-Australian BHP Billiton's ( BHP) hostile takeover bid for Potash Corp. ( POT) in 2010 and the sale of Vancouver-based MacDonald, Dettwiler and Associates' space-technology division to an American company in 2008. In the case of Potash Corp., the local Saskatchewan provincial government was against the foreign takeover of a company that controls 25% of the world's supply of potash. A federal election also loomed at the time.

Prime Minister Stephen Harper's Conservative government has allowed Chinese companies to take stakes in energy companies and has made trade with China a top priority in recent years. However, Harper has said the Nexen-CNOOC deal "raises a range of difficult policy questions."

At a news conference in Senegal last week, Harper said there's a national security angle that factors into Canada's relationship with China, calling it important but complex.

Jiang said the perception of Chinese firms compared with other state-owned counterparts is unfair in many ways.

"The Chinese state-owned companies are considered more menacing in a sense by some people than, say, a national oil company of Malaysia," he said. "We need to figure out how do we treat China? Is this potentially treating China as an enemy? Or do you treat China as a business partner?"

A year before their acquisition deal was announced, Progress and Petronas formed a partnership to jointly develop shale natural gas in northeastern British Columbia and look at exporting the gas off the West Coast in liquid form.

CNOOC and Nexen also had a pre-existing relationship. Last year, CNOOC scooped up Opti Canada, Nexen's beleaguered minority partner in its troubled Long Lake oilsands project. The two firms also worked together in the Gulf of Mexico.

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